danieldwilliam: (Default)
danieldwilliam ([personal profile] danieldwilliam) wrote2011-03-10 10:21 am
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Fuel Duty and Interest Rates


Here follows a thinly veiled rant about fuel prices.

 

I am sorry that fuel prices are going up. I wish we could all enjoy cheap, abundent energy without killing each other over it or destroying the planet. I also wish we could enjoy a wide range of high quality public services and reduce out tax bill.

 

Currently, the two problems are proving intractable. Don’t worry too much about it, I’m working on them and I’ll deliver a solution just as soon as I can.

 

In the meantime.

 

If you live in the country and drive a car, tough.

 

If you live in the country you have voluntarily taken on the risk of higher fuel prices. You did this in exchange for a) a way of living that suited you better than living in an urban set up, b) cheaper housing costs and therefore lower capital outlays, reduced interest payments and a reduced exposure to the risk of interest rate rises.

 

I chose to live in the centre of Edinburgh and I can walk to work, to the shops, to my son’s nursery. I have relatively little direct exposure to fuel prices. I paid extra for my flat. I have taken on an exposure to interest rates. I want to live in the city and avoid the risks of country living.

 

When interest rates go up will country dwellers demand that I receive a mortgage subsidy because I have chosen to take on addition debt?

 

A large part of the cost of motor fuel is taxation. By reducing this tax we must either cuts services or raise taxes, either now or in the future. Country dwellers and motorists, which services are you proposing to cut? Which taxes are you proposing to increase? Not mine I hope. When I paid additional stamp duty on my urban flat did you offer to sack one of your children’s teachers so I could avoid the tax? No? Hands of my kid’s school then.

 

A large part of the difficulty we find ourselves in is caused by our collective and individual failure to understand the risks we were signing up to. We should all do better next time round. This does not start by taking a risk you created for yourself and trying to export it politcally to other people. That sounds like a banker’s strategy.


andrewducker: (Default)

[personal profile] andrewducker 2011-03-11 09:06 am (UTC)(link)
I don't think it means the annihilation of the middle class. It may well mean that their quality of life remains stagnant for some time, but I'm not forseeing a collapse any time soon.

[identity profile] danieldwilliam.livejournal.com 2011-03-11 10:33 am (UTC)(link)
Like Andrew I’m not too concerned about the middle-classes over the next ten years.

For starters, Western workers are still more productive than non-Western workers and as non-Western workers see their wages go up it narrows the gap between their cheapness and out goodness

Whilst it’s true that there is increasing competition from abroad for higher skilled jobs and this is placing a cost pressure on our wages it does have two advantages that don’t get mentioned as often as they should be.

Firstly, if they are cheaper it means access to cheaper stuff for us. This was true of simple manufactured goods and will be true of more complex manufactured goods and services.

Secondly, as they become wealthier they will buy more of our stuff and it will be the really valuable and hard to reproduce stuff.

This second point helps us in a number of ways.

Firstly, they will just buy more stuff from us. So industries like whisky, oil and gas services in Aberdeen, life science, financial services will all do well.

Secondly, with more wealthy people in the world the fixed costs of things are spread over a wider base. This affects a huge number of things like dealing with Somali pirates (come on Indian Navy), R&D costs (add 100m Indians and 100m Chinese to the 400m Westerners who might buy the next smartphone and you can spread R&D much more widely, cost of internation institutions (I look forward to Eastern European countries contributing more to the cost of the EU or NATO so that I don’t have to).

Thirdly, with more wealthy people in the work doing more thinking technology should move on an increasing pace steadily improving the quality of goods and services and reducing their cost.

This effects will affect different industries differently. There will be winners and losers. Good times for anyone who adds a lot of value to their output in a way that is hard to copy or who sells premium goods or services. Bad times for anyone operating on narrow margins.

So for the next few years things will rough for us, and for the next ten living standards might stagnate on average but there will big variations.

I think the people who will really suffer are the unskilled workers of the West. Unable to compete on price with the Chinese or on wage-adjusted productivity with Eastern Europeans they will struggle for jobs and a middle class that is squeezed, or at least telling itself that it is squeezed, will be increasingly reluctant to provide transfer payments.

Kids, stay in school.
andrewducker: (Default)

[personal profile] andrewducker 2011-03-11 12:01 pm (UTC)(link)
Yeah, I agree with all of that.

We're more efficient, and locality is still useful (even in these days of hyper-communication). This will presumably change with time (at least the former will), but for the moment I'm not too worried.